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Digitization to Drive Mastercard’s Payment Volume in Third Quarter

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Rising digital payment market

Mastercard’s (MA) third-quarter results are expected to benefit from the growing trend of cashless transactions around the world. This trend is being driven by increased mobile and Internet penetration as well as rapidly growing e-commerce and POS (point-of-sale) transactions.

According to a research report from Statista, the total global digital payments transaction value is expected to grow from ~$2.75 trillion in 2017 to ~$5.41 trillion in 2022, representing a compound annual growth rate of 13.5% during the period. For 2018, the research firm expects the digital payment transaction value to grow 18.6% year-over-year and reach $3.27 trillion.

The majority of this growth is believed to be driven by increased digital commerce transactions. According to Statista, the digital commerce transaction value could reach $4.08 trillion in 2022 from $2.52 trillion in 2017.

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With a sustained focus on investing in technological innovations and the rapid adoption of digital payment platforms, payment processing companies Mastercard, Visa (V), PayPal (PYPL), and Amazon’s (AMZN) Amazon Pay are witnessing a tremendous increase in payment volume. Mastercard and PayPal ended 2017 with total payment volume $5.2 trillion and $451 billion, respectively. Visa ended fiscal 2017 with a total payment volume of $7.34 trillion.

High growth expectations from the Indian market

Mastercard’s management has a positive outlook on India due to its strong issuing partners and significant market share. The Indian digital payment market received a healthy boost after the country’s November 2016 demonetization initiative.

Since then, Mastercard has witnessed a sharp uptrend in its transactions. With the Indian government’s effort to promote digital payments, Visa is expected to register growth in the number of transactions as well as transaction value.

According to a Credit Suisse report, the digital payment market in India is expected to increase fivefold and cross the $1.0 trillion mark by 2023 from the current level of $200.0 billion. Visa stands to benefit substantially from the robust growth in the digital payment market.

The Indian market contributes 3.0% to Mastercard’s total revenues. Given the immense growth opportunity, the company announced in 2016 that it planned to invest $800.0 million through 2020 in enhancing processing capabilities, mobile technology and solutions, and data analytics.

Mastercard constitutes ~4.6% of the iShares Edge MSCI USA Momentum Factor ETF (MTUM).

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